Stocks May Not Have Advantage over Bonds

March 7, 2003

While we have lived our entire adult lives with the comfortable idea that stocks always beat bonds and that it takes the real return on stocks to stay ahead of inflation, some new research indicates otherwise, according to financial analysts Lacy H. Hunt and Van Hoisington.

Their research began when they were asked two questions: Can the postwar returns on stocks and bonds be repeated? And what factors influenced the risk premium (the amount of additional interest investors require to buy a riskier financial instrument)?"

They found:

In most periods, including 1871, 1900, 1926 and 1946, stock dividend yields were higher than bond yields.